Professional Documents
Culture Documents
Select a house from a real estate booklet, newspaper, or website. Find something reasonable –
between $100,000 and $350,000. In reality, a trained financial professional can help you
determine what is reasonable for your financial situation. Take a screen shot of the listing for
your chosen house and attach it to this project. Assume that you will pay the asking price for
your house.
Ask at least two lending institutions for the interest rate for both a 15-year and a 30-year fixed
rate mortgage with no “points” or other variations on the interest rate for the loan.
Rate for 15-year mortgage: 4.390% Rate for 30-year mortgage 4.799%
Rate for 15-year mortgage: 4.361% Rate for 30-year mortgage 4.723%
Assuming that the rates are the only difference between the different lending institutions, find the
monthly payment at the better interest rate for each type of mortgage.
These payments cover only the interest and the principal on the loan. They do not cover the
insurance or taxes.
To organize the information for the amortization of the loan, construct a schedule that keeps
track of: (1) the payment number and/or (2) the month and year (3) the amount of the payment,
(4) the amount of interest paid, (5) the amount of principal paid, and (6) the remaining balance.
There is an MS excel file included on our CANVAS page if you are using a PC or you can also
use any online programs that are available such as the one on Brett Whissle’s website
http://bretwhissel.net/cgi-bin/amortize if you are using a MAC.
It’s not necessary to show all of the payments in the tables below. Only fill in the payments in
the following schedules. Answer the questions after each table.
30-year mortgage
The total amount paid is the number of payments times the amount paid per month.
The total interest paid is the total amount paid minus total amount of interest paid.
Use the proper number to fill in the blanks and cross out the improper word
in the parentheses.
Payment number 185 is the first one in which the principal paid is greater than the interest
paid.
Payment number _1 is the first one in which the principal paid is greater than the interest paid.
The total amount of interest is $165,298.82 (less) than the mortgage.
Notice how the 15-year mortgage reduces the amount of interest paid over the life of the loan.
Now consider again the 30-year mortgage and suppose you paid an additional $100 a month
towards the principal [If you are making extra payments towards the principal, include it in the
monthly payment and leave the number of payments box blank.]
The total amount of interest paid with the $100 monthly extra payment would be $262,738
The total amount of interest paid with the $100 monthly extra payment would be $35,999
(less) than the interest paid for the scheduled payments only.
The total amount of interest paid with the $100 monthly extra payment would be 15.51%
(less) than the interest paid for the scheduled payments only.
The $100 monthly extra payment would pay off the mortgage in 25 years and 11 months;
that’s 49 months sooner than paying only the scheduled payments.
Summarize what you have done and learned on this project in a well written and typed paragraph
of at least 100 words (half page). Because this is a math project, you must compute and
compare numbers, both absolute and relative values. Statements such as “a lot more” and “a lot
less” do not have meaning in a Quantitative Reasoning class. Make the necessary computations
and compare
(3) the 15-year mortgage to the 30-year mortgage with an extra payment
Also, keep in mind that the numbers don’t explain everything. Comment on other factors that
must be considered with the numbers when making a mortgage.
The 15 year loan would be better overall than the 30 year loan because you would end up paying
$132,038.60 less in interest by going with the 15 year loan. The one drawback to the 15 year
loan vs. the 30 year loan is you would have to be able to afford paying $618.51 more per month.
Part of this is because the interest rate for the 15 year loan is 0.362% less than the 30 year loan.
Even though paying $100 a month extra saves you $35,999 in interest, it is still better to go with
the 15 year loan. You would still save $58,702.18 in total interest by going with the 15 year loan
than by going with the 30 year loan and paying $100 more each month.